Reference no: EM133061493

Question - Variable and Absorption Costing - Summarized data for 2016 (the first year of operations) for Gorman Products, Inc., are as follows:

Sales (75,000 units) $4,500,000

Production costs (80,000 units)

Direct material 1,320,000

Direct labor 1,080,000

Manufacturing overhead:

Variable 816,000

Fixed 480,000

Operating expenses:

Variable 252,000

Fixed 360,000

Depreciation on equipment 90,000

Real estate taxes 27,000

Personal property taxes (inventory & equipment) 43,200

Personnel department expenses 45,000

a. Prepare an income statement based on full absorption costing.

b. Prepare an income statement based on variable costing.

c. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $45 per unit. Which income statement presents the most relevant data? Answer

Determine the apparent profit or loss on the special order based solely on these data.

d. If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why?

Select the most appropriate statement.

A- Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

B- Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.